Madrid, September 06, 2011 -- Moody's Investors Service has today downgraded the ratings of two
Portuguese government-related issuers (GRIs) by one notch to B2
from B1, and has affirmed the B1 ratings of two other such entities.
The outlook on all ratings is negative.
The rating downgrades affected the following entities:
- Comboios de Portugal EPE ("CP"), whose corporate
family rating (CFR) and probability of default rating (PDR) were downgraded
to B2 from B1.
- Rede Ferroviaria Nacional EPE ("REFER"), whose
CFR, PDR as well as senior unsecured bonds were also downgraded
to B2 from B1.
Concurrently, Moody's has affirmed the B1 (CFR, PDR
and senior unsecured) ratings of Parpublica-Participacoes Publicas
(SGPS), SA ("Parpublica") and Radio e Televisao de Portugal
S.A. ("RTP").
All of the above companies are GRIs, which have a very strong element
of government support incorporated into their ratings in accordance with
Moody's rating methodology for such entities.
RATINGS RATIONALE
- DOWNGRADES OF REFER AND CP
Moody's decision to downgrade REFER and CP is in response to the
announcement by the Government of the Republic of Portugal (RoP,
Ba2, negative outlook) that it intends to implement a broad restructuring
of the state-owned enterprise sector in Portugal ("SOEs"s).
While this plan is likely to have positive long-term effects for
all the SOEs in general and for the GRIs rated by Moody's in particular,
there are increased risks associated with its implementation in the short
to medium term.
In particular, while these plans are being implemented for each
one, debt creditors will need to be persuaded to continue funding
individual SOE's -- which have a significant and still expanding
debt burden for some -- as well as the SOE sector as a whole.
REFER and CP have to date been able to roll over their short-term
debt maturities and have benefited from support from the government,
which Moody's expects to continue. However, these entities
have some of the largest debt maturities that will become due over the
next 12 months, thus rendering them more vulnerable to any negative
developments. (By comparison, the short-term refinancing
positions of Parpublica and RTP appear relatively less stretched,
given their more balanced liquidity profile.) Moody's has
lowered REFER and CP's baseline credit assessment (BCA), which
measures their standalone credit quality, to 20 (Ca equivalent)
from 19 (Caa3 equivalent). This largely reflects the two companies'
very weak financial and liquidity profiles on a standalone basis.
Nevertheless, today's downgrade of REFER and CP's ratings
was limited to one notch because Moody's expects banks to extend
REFER and CP's debt maturities, which are likely to be supplemented
where necessary with tangible financial support from the government.
In accordance with Moody's rating methodology for GRIs, the
B2 ratings of REFER and CP reflect the following combination of inputs:
(i) a BCA of 20 (Ca equivalent); (ii) the Ba2 local currency rating
of the government of RoP; (iii) very high dependence; and (iv)
high support. The BCA reflects the fact that, on a standalone
basis, the financial profiles of REFER and CP are very unstable,
and that absent the explicit and implicit support from the government
they would likely default on their debt obligations.
The outlook on the ratings of both CP and REFER remains negative,
reflecting the negative outlook on the debt of the Portuguese government
as well as the implementation risk affecting the announced restructuring
plan. A change in the sovereign rating of Portugal in either direction
would likely result in a change in these two entities' ratings.
Furthermore, any evidence that the government of RoP would not provide
financial support to one or more of the Portuguese GRIs in a stress situation
would result in Moody's downgrading the rating of the affected company.
- AFFIRMATION OF PARPUBLICA AND RTP
The rating affirmations for both RTP and Parpublica reflect Moody's
assessment that these entities have a less fragile liquidity risk profile.
Moody's support assumptions have not been altered by the recent
government announcement.
Parpublica's B1 rating reflects its position as the industrial holding
arm of the government's strategic companies and therefore serves
the government's political objectives. The B1 rating is two
notches below the sovereign bond rating of Ba2, reflecting Moody's
view that the company's ownership structure (100% state-owned),
together with the significant financial, strategic and management
control exerted by the government, justifies the determination of
the rating through credit substitution as opposed to a more granular analysis.
The rating also reflects Parpublica's lack of reliance on direct
government funding, as well as the value of its equity holdings
versus its debt. Moody's expects some of the equity holdings
to be sold as part of the government's need to raise cash and to
be replaced with other government-owned assets.
RTP's B1 rating reflects the following combination of inputs:
(i) a BCA of 17 (Caa1 equivalent); (ii) the Ba2 local currency rating
of RoP; (iii) very high dependence; and (iv) high support.
RTP's BCA of 17 reflects both lower liquidity stress following the
recent renegotiation of some of the terms of its senior unsecured bank
facility, including the waiver of a covenant linked to the rating
of the RoP. Nevertheless, Moody's notes that RTP's financial
profile remains weak and its interest coverage metrics will weaken somewhat
as a result of the increased interest expense resulting from the renegotiation
of the terms of the loan. Moody's will continue to monitor
additional expressions of support from the government in the form of explicit
guarantees for part of RTP's debt. Moody's will also
monitor any potential privatisation of the company, which,
if implemented, would likely lead to RTP losing its GRI status and
the removal of its rating uplift based on current government support.
In line with the negative outlook, Moody's does not expect
positive pressure to be exerted on the ratings in the short term for both
entities. However, Moody's would consider upgrading
RTP's senior unsecured bank facility rating to the sovereign rating
level if the government were to provide an explicit guarantee for this
facility. A change in the sovereign rating of Portugal would likely
result in a change in these two entities' ratings.
Also, any evidence that the provision of financial support from
the Portuguese government would not be forthcoming in a stress situation
could result in a downgrade. In addition, negative pressure
could develop in the event of a weakening of the liquidity profiles of
RTP and Parpública. Moreover, further downward pressure
on RTP's ratings, such that they approach that of its standalone
credit quality, could result from (i) a partial sale of the government's
shareholding in RTP; or (ii) any indication of a change in RoP's
willingness/capacity to intervene in a timely manner to support the company
in the event of need.
PRINCIPAL METHODOLOGIES
The principal methodology used in rating Comboios de Portugal was the
Global Passenger Railway Companies Industry Methodology published in December
2008. Other methodologies used include Loss Given Default for Speculative-Grade
Non-Financial Companies in the U.S., Canada
and EMEA published in June 2009 and the Government-Related Issuers
methodology published in July 2010. Please see the Credit Policy
page on www.moodys.com for a copy of these methodologies.
The principal methodology used in rating Parpublica-Participacoes
Publicas (SGPS), SA was Government-Related Issuers:
Methodology Update published in July 2010. Please see the Credit
Policy page on www.moodys.com for a copy of this methodology.
The principal methodology used in rating Rede Ferroviaria Nacional REFER,
E.P.E. was the Government Owned Rail Network Operators
Industry Methodology published in April 2009. Other methodologies
used include the Government-Related Issuers methodology published
in July 2010. Please see the Credit Policy page on www.moodys.com
for a copy of these methodologies.
The principal methodology used in rating Radio e Televisao de Portugal
S.A. was the Global Broadcast Industry Methodology published
in June 2008. Other methodologies used include Loss Given Default
for Speculative-Grade Non-Financial Companies in the U.S.,
Canada and EMEA published in June 2009 and the Government-Related
Issuers methodology published in July 2010. Please see the Credit
Policy page on www.moodys.com for a copy of these methodologies.
CP is the main railway operator in Portugal, controlling 90%
of the passenger market. The company is 100% owned by the
Portuguese government though the Ministry of Finance and in FY 2010 reported
revenues of EUR239 million.
Parpublica is a state-owned industrial holding company domiciled
in Lisbon, Portugal. Parpublica's main role is the
management of equity stakes held by the Portuguese state in Portuguese
companies of public or strategic interest in terms of the restructuring
of the corresponding sector. The Minister of Finance acts on behalf
of the state, in its capacity as sole shareholder of Parpublica.
As of June 2011, Parpublica's direct equity holdings portfolio
had a book value of approximately EUR6.7 billion. The company's
largest holdings are in Energias de Portugal, S.A.
(EDP), GALP Energia, Redes Energeticas Nacionais (REN),
TAP airline and ANA.
REFER is a special status corporation set up by Portuguese Decree Law
to upgrade, operate and maintain substantially all of Portugal's
heavy rail infrastructure. REFER is 100% owned by the RoP
and has a special legal status (Entidade Pública Empresarial,
or "EPE") that defines its role as a company undertaking activities
of public interest.
RTP is a corporation, duly incorporated under domestic law,
and therefore subject to standard Portuguese commercial law. RTP
is 100% owned by the Portuguese state through the General Directorate
of Treasury and Finance, and has operated Portugal's public
service broadcasting channels under a concession from the government since
1996.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides relevant regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides relevant regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides relevant regulatory disclosures in relation
to the provisional rating assigned, and in relation to a definitive
rating that may be assigned subsequent to the final issuance of the debt,
in each case where the transaction structure and terms have not changed
prior to the assignment of the definitive rating in a manner that would
have affected the rating. For further information please see the
ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
The rating has been disclosed to the rated entity or its designated agent(s)
and issued with no amendment resulting from that disclosure.
Information sources used to prepare the rating for Comboios de Portugal
and Parpublica-Participacoes Publicas (SGPS), SA are the
following: parties involved in the ratings, public information,
and confidential and proprietary Moody's Investors Service information.
Information sources used to prepare the rating for Rede Ferroviaria Nacional
REFER, E.P.E. are the following: parties
involved in the ratings, parties not involved in the ratings,
public information, and confidential and proprietary Moody's
Investors Service information.
Information sources used to prepare the rating for Radio e Televisao de
Portugal S.A. are the following: parties involved
in the ratings, and confidential and proprietary Moody's Investors
Service information.
Moody's considers the quality of information available on the rated
entity, obligation or credit satisfactory for the purposes of issuing
a rating.
In addition to the information provided below please find on the ratings
tab of the issuer page at www.moodys.com, for each
of the ratings covered, Moody's disclosures on the lead rating
analyst and the Moody's legal entity that has issued each of the
ratings.
Moody's adopts all necessary measures so that the information it uses
in assigning a rating is of sufficient quality and from sources Moody's
considers to be reliable including, when appropriate, independent
third-party sources. However, Moody's is not an auditor
and cannot in every instance independently verify or validate information
received in the rating process.
Moody's Investors Service may have provided Ancillary or Other Permissible
Service(s) to the rated entity or its related third parties within the
three years preceding the credit rating action. Please see the
ratings disclosure page on our website www.moodys.com for
further information.
Please see Moody's Rating Symbols and Definitions on the Rating Process
page on www.moodys.com for further information on the meaning
of each rating category and the definition of default and recovery.
Please see ratings tab on the issuer/entity page on www.moodys.com
for the last rating action and the rating history.
The date on which some ratings were first released goes back to a time
before Moody's ratings were fully digitized and accurate data may not
be available. Consequently, Moody's provides a date that
it believes is the most reliable and accurate based on the information
that is available to it. Please see the ratings disclosure page
on our website www.moodys.com for further information.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Madrid
Ivan Palacios
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service Espana, S.A.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
London
Paloma San Valentin
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's Investors Service Espana, S.A.
Calle Principe de Vergara, 131, 6 Planta
Madrid 28002
Spain
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's downgrades two and affirms two Portuguese government-related issuers; negative outlook
